Resilient Consumer Propels Upward Revision to Q2 2025 GDP Growth

Real GDP grew 3.8% q/q saar in the second quarter of 2025, revised up from 3.3% in the previous estimate and 3.0% in the first estimate. The previously reported 0.5% q/q decline in Q1 was revised down slightly to a 0.6% decline. A 3.3% quarterly increase had been expected by the Action Economics Forecast Survey. Growth over the four quarters ending in Q2 was revised up meaningfully to 2.7% y/y from 2.1% in the previous estimate. The previously reported 1.7% q/q not annualized rise in corporate profits in Q2 was revised down to a meager 0.2% quarterly increase.

Significant upward revisions to PCE and nonresidential fixed investment were the key factors behind the upward revision to overall GDP growth. Real personal consumption expenditures growth was revised up to 2.5% q/q saar from 1.6% in the second estimate and 1.4% in the advance report. And upward revision to spending on services (2.6% vs 1.2%) was the major factor behind the upward revision to total consumer spending. Nonresidential business investment rose a revised 7.3% in Q3 from 5.7% in the second estimate and 1.9% in the advance report. There were upward revisions to all three components of business investment—structures, equipment and intellectual property—with the largest being to intellectual property (15.0% vs 12.8%). Residential investment was revised down to a 5.1% quarterly decline from -4.7% in the second estimate.

The two biggest factors behind overall Q2 growth, inventory investment and the trade deficit, were each revised slightly in the third estimate. The 3.29%-point subtraction from the decline in inventory investment was revised a bit larger to -3.44%-points in the second estimate. Inventory investment had added 2.58%-points to Q1 growth. The trade deficit narrowed a little less than previously estimated. So, its positive contribution to Q2 growth was revised down slightly to 4.83%-points from 4.95%-points. Net exports had subtracted 4.68%-points from Q1 growth. The 0.2% q/q decline previously reported for government spending was revised up slightly to a 0.1% quarterly fall.

Encouragingly, with meaningful upward revisions to both consumption and business fixed investment, measures of aggregate demand for Q2 were revised up significantly. Aggregate demand had been extremely weak in the advance GDP report, eliciting concern of a meaningful pending slowdown in the overall economy. However, the second and third estimates have shown solid growth of aggregate demand. Final sales to domestic purchasers increased 2.4% q/q in Q2 in today’s report versus 1.6% in the second estimate and an anemic 1.1% in the advance report. Similarly, final sales to private domestic purchasers (the Fed’s preferred measure of domestic demand) was revised up to 2.9% from 1.9% in the second estimate and 1.2% in the advance report.

There was little revision to measures of inflation in this report. Inflation in Q2 as measured by the GDP price index was revised up slightly to 2.1% q/q saar in today’s report from 2.0% in the second estimate. The central part of overall inflation—PCE inflation—was also revised up slightly in today’s report, to 2.1% from 2.0%.

Today’s report also included annual benchmark revisions for the period Q1 2020 to Q1 2025. In general, these revisions were de minimis. After the benchmark revision, annual real GDP grew 2.4% at an annual rate from 2019 to 2024, the same as previously reported. Similarly, real personal consumption expenditures rose 2.9% both before and after revision. Nonresidential business investment increased 3.6% over this period after revision, up slightly from 3.5% before revision. Residential investment inched up 0.7% after revision versus a 0.9% rise before the revision. And government spending growth was unrevised at 1.8%.

The GDP data can be found in Haver’s USECON and USNA databases. USNA contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in AS1REPNA.